Close Encounters with Bank Runs Ray B. Dawn Chairman CDIC (Taiwan) Nov. 1, 2007 6 th IADI Annual Conference.

Close Encounters with Close Encounters with Bank RunsBank Runs

•Ray B. Dawn

•Chairman

•CDIC (Taiwan)•Nov. 1, 2007

6th IADI

Annual Conference

2

The Way We Were

Apocalypse Now

The Day After Tomorrow

Contents

3

The Way We Were

4

Source: www.answers.com/topic/bank-run

CREATED/PUBLISHED: Cin'ti ; N.Y. : Strobridge Lith. Co., c1895. CREATOR: Strobridge & Co. Lith.

History Has It

5

Panic Depositors at a Failed Bank, NYC (1914)

6Source: CDIC (Taiwan)

Depositors at a Failed Bank in Taiwan(Jan. 2007)

7Source: CDIC (Taiwan)

CDIC Staff Tried to Control the Run (Jan, 2007)

8

Source: CDIC (Taiwan)

Piles of Money to be Withdrawn (Jan, 2007)

9

0

10

20

30

40

50

60

70

1990 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2007

0

1

2

3

4

5

6

7

8

9

10

Deposit depletion ratio

number of bank runs

%

Bank Run: An Inconvenient Truth (1990~2007)

Runs

10

Types of Institutions Number of Bank Runs

Credit Cooperatives 13

Credit Departments of Farmers’ and Fishermen’s Associations (FFA)

31

Banks 14

Total 58

Bank Runs in Taiwan

Source: CDIC (Taiwan)

11

Some Bank Runs Are More Serious Than Others

Deposit Depletion Cases

Less than 10% 18

10~20% 18

20~30% 9

30~40% 5

40~50% 1

50~60% 1

Source: CDIC (Taiwan)

12

Date Number of Institutions Depletion Ratios

1996/5/25 2 credit departments of FFAs 5% & 13%

1997/1/13 2 credit departments of FFAs 10% & 14%

1997/6/11 2 credit cooperatives 32% & 47%

1998/11/2 3 credit departments of FFAs 1%, 1% & 2%

1999/6/28

~7/30

2 credit cooperatives & 2 credit departments of FFAs

5%, 11%, 21% & 63%

2000/5/1

~6/8

3 banks 8%~13%

2007/1/4 2 banks 17%~35%

Bank Runs Can Be Contagious

Source: CDIC (Taiwan)

13

Case Date & Depletion Ratio

Bank A Feb. 1994, 11% + July 1999, 6%

Bank B Sept. 1995, 15% + July 1999, 11%

Bank C Dec. 1995, 12% + May 2000, 8%

Bank D April 2000, 20% + April 2003, 4%

Bank E July 1998, – + Nov. 1998, 1%

Bank F Nov. 1994, 4% + Feb. 1996, 28%

Bank G May 1996, 35% + March 1999, –

Bank H Feb. 1996, 22% + Jan. 2007, 10%

People Barely Learnt from History

Source: CDIC (Taiwan)

14

• Mutual Assistance Network of Credit

Cooperatives

8 runs

• County Assistance Network of Credit

Departments of FFA

24 runs

14 runs

5 runs

• CDIC (Taiwan)

• Financial Restructuring Fund (FRF)

Liquidity Providers to Bank Runs (1990~2007)

15

How Financial Markets Responded to the Run of One Failed Bank (2007/1/5 as 100)

94.00

95.00

96.00

97.00

98.00

99.00

100.00

101.00

102.00

2006/11/23 2006/12/14 2007/1/5 2007/1/26 2007/2/16

%

Taiwan Stock Index

NTD/USD

Overnight Interest Rate

16Note: D-day means the day CDIC took over the FI under the instruction of FSC.

Source: CDIC (Taiwan)

Paces of Deposit Depletion(2006 & 2007)

-8

-6

-4

-2

0

2

4

6%

D-day

D-5D-10D-15D-20 D+5 D+10 D+15

-35

-30

-25

-20

-15

-10

-5

0

5

10 %

D-day

D-5D-10D-15D-20 D+5 D+10 D+15

-40

-30

-20

-10

0

10

20%

D-day

D-5D-10D-15D-20 D+5 D+10 D+15

-20

-15

-10

-5

0

5

10%

D-day

D-5D-10D-15D-20 D+5 D+10 D+15

Bank K Bank L

Bank M Bank N

17

Passbook Deposits Took the Hit (2007)

Bank X

8.00%

80.60%

11.40%

Bank Y

7.42%

77.88%

14.70%

Bank Z

2.74%

75.83%

21.43%

Checking Accounts

Passbook Deposits

Time Deposits

18

Individuals at the Gate

Bank X

95.29%

4.71%

Bank Y

92.21%

7.79%

Institutions

Individuals

Bank Z

93.14%

6.86%

19

Bank Y

56.66%

43.34%

Bank Z

55.92%

44.08%

Female

MaleBank X

50.26%49.74%

Female Depositors Seemed More Concerned

20

The Mid-Age Appeared More Cautious

Bank X

3.84%15.93%

25.46%

25.05%

17.07%

12.65%

Bank Y

8.81%

19.11%

28.71%

25.05%

18.32%

30-39

40-49

Bank Z

3.63%15.64%

27.10%23.36%

17.19%

13.08%

20-29

Above 60

50-59

Below 20

21

Bank X

98.51%

1.49%

Bank Y

95.58%

4.42%

Below NTD 1 million

Bank Z

96.21%

3.79%

Above NTD 1 million

Small Depositors Were Prone to Panic

22

Apocalypse Now

23

From Main Street to Wall Street

B

AAA

AA

A

WallStreet

NINJ ABorrowers

SubprimeLoans

B

BB

A

BBB

BBB

BB

Mortgage-backed

Securities(MBSs)

CollateralizedDebt Obligations

(CDOs)

AAA

AA

……

.

.

.

24

Events Associated with Subprime Chaos

Date Events

April New Century filed for bankruptcy

May UBS posted a loss of SF 150 million in Q1, 2007

July Bear Stearns lost $20 billion and closed two funds

August 6 AHMI filed for bankruptcy

August 9 BNP Paribas closed three funds

August 9~20 Central Banks injected liquidities to financial markets

September 14 Run on the Northern Rock Bank

2585

90

95

100

105

110

115

2007/1/2 2007/2/13 2007/3/27 2007/5/8 2007/6/19 2007/7/31 2007/9/11

%

DJIA

FTSE

Nikkei 225

Volatile Stock Markets in 2007(2007/1/2 as 100)

26

Central Banks to the Rescue (Aug. 9~16)

Central Banks

Liquidity Injected

(US$ billion)

ECB 290.1

FED 81

Canada 3.8

Japan 13.55

Australia 10.14

Source: Reuters

27

Run on a British Bank

28

Group Blame Factor

The Borrowers

Mortgage Brokers

Appraisers

Mortgage Lenders

Wall Street

Rating Agencies

The Fed

Let the Finger-Pointing Begin

Source: http://money.cnn.com/galleries/2007/fortune/0709/gallery.subprime_blame.fortune/index.html

29

The Day After Tomorrow

30

• The Roles of DIs and IADI

• Cooperation among Safety Net Players Across Borders

• Insurance Schemes for Direct Financing?

• Liquidity Adequacy vs. Capital Adequacy?

What’s Next ?

Thank You